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Markets look to US CPI report for direction

by SuperiorInvest
  • Wall Street pulls back from highs as investors await US inflation update
  • Dollar gains support as yields rise and yen resumes slide
  • Libra boosted by strong employment data; rises above $50,000

Risk rally cools ahead of major inflation report
Stocks were mixed on Tuesday, while major currency pairs traded within their recent ranges, with a few exceptions, ahead of crucial CPI numbers due out in the US later in the day. After flirting with record territory again on Monday, the S&P 500 ended the session slightly in the red. The Dow Jones had more success closing at a new all-time high, but the rally appears to have lost some steam, and many investors are likely to sit on the sidelines as they wait for the latest CPI indicator.

Only a handful of Wall Street giants have yet to report earnings and they are unlikely to ruin what has been a solid season, as the S&P 500 looks set to post a second consecutive quarter of year-over-year earnings growth.

European stocks are following the downward trend in U.S. futures, but Asian markets trading this week were mostly positive on Tuesday as stocks in Tokyo rose. It fell less than 1,000 points from its 1989 all-time high amid renewed interest in Japanese stocks.

Softbank (OTC 🙂 was one of the big winners, getting a boost from its stake in chipmaker Arm Holdings (NASDAQ 🙂, which soared 29.3% in New York yesterday on strong earnings results for the week past and current fashion of AI. .

The Fed remains cautious despite the expected fall in the CPI

The big question now is whether this optimistic sentiment will survive the test of the CPI. Many analysts predict that the headline CPI will fall below 3% in January for the first time since March 2021, while the core CPI is expected to fall to 3.7% year-on-year.

A bullish surprise could deal a further blow to early bets on rate cuts, as a May move has also recently begun to come into question.

Since the January FOMC meeting, Fed officials have been consistent in their communication that they are in no rush to begin easing at a time when the labor market remains very tight and inflation has a long way to go before achieve the 2% target in a sustainable way.

Richmond Fed President Thomas Barkin warned Monday that “there is a real risk that there will be continued inflationary pressure,” underscoring policymakers' caution about rushing to declare victory over inflation.

Dollar holds firm as yen comes under pressure again

US Treasury yields rose again on Tuesday after falling yesterday. The 10-year yield has remained stuck around 4.15% for the past few sessions, unable to take the NFP-led rally much further, but a pullback does not appear to be in sight either.

The lack of clear direction in yields has kept the US dollar in a sideways range against most major peers, reaching new highs only against the Japanese yen and Swiss franc.

The yen was back on the defensive on Tuesday as investors increasingly take the view that any aggressive moves by the Bank of Japan this year will likely be limited. The danger is that as the dollar approaches the 150 yen level again, Japanese officials will likely resume their verbal intervention to push the yen higher.

Good start for sterling in a busy week

The pound was one of the best performers against the dollar on Tuesday, rising above $1.2650 following better-than-expected employment figures. The UK unemployment rate fell more than expected in the three months to December to 3.8%, while wage growth did not slow as much as had been forecast, giving the Bank of England little reason to to cut rates sooner rather than later.

Tomorrow's CPI numbers will probably matter a little more for the Bank of England's rate cut expectations, but the jobs numbers have definitely set the tone for the rest of the week for sterling.

Bitcoin rally accelerates

Meanwhile, in the cryptocurrency world, Bitcoin extended its winning streak, rising more than 3.0% on Monday to surpass the $50,000 level for the first time since December 2021.

Bitcoin's rally in the run-up to the ETF's approval suffered a sell-off correction after royal approval, but renewed interest ahead of its April halving has led to an inflow of more than $1 billion into crypto markets over the past week, according to some reports. .

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